Help build a deposit for a home sooner with shares

In saving for a deposit to buy property in the next five years or so, it might be useful to consider how investing in the share market could form part of a strategy to get there sooner.

Rodney Greenhalgh, Head of Investment Product Solutions at BT Financial Group, suggests five strategies for those considering investing in the share market as part of their overall strategy to help with building a home deposit.

He says that the right planning and, in some cases, support from experts, can help. He also says that people needn’t feel overwhelmed.

“Even though the potential exists to earn higher returns from shares, especially in the low interest rate environment, people may not have the time or confidence to capitalise on the opportunity. But there are ways to make investing in the share market easier,” says Greenhalgh.

5 share market investment strategies

1. Get educated (if you’re doing it all yourself)

“While you don’t need to become a share market expert to become a successful investor, it can help to understand the basics,” says Greenhalgh.

The share market provides an opportunity to purchase shares in particular companies but there are also opportunities to access exposure to other asset classes including international shares, fixed income and listed property securities. These different investments generally have different risk and return profiles and this should be considered in creating an appropriate investment strategy.

Greenhalgh says, “You also need to be aware that with most strategies, time is required (over five years) to manage the variability of the market and to give the greatest chance of achieving the investment goal.”

Different types of investments carry different risk profiles.

2. Create an investment plan

“Creating an investing roadmap is an important step to reaching financial goals,” says Greenhalgh.

“For example, starting with $25,000 today and a target home deposit to be achieved over the next 5 years means calculating how much can realistically be saved, or invested, each month and what rate of return will be needed to get there.”

It is important to know what you are aiming for, as well as having an understanding of your tolerance for risk, so you can build an investment plan that is aligned to your goals.

3. Diversify your investments

“Diversification of your investment can help manage risk and drive potential returns,” says Greenhalgh. “Even within a specific asset class such as ASX listed securities, holding shares in more than one Australian company across different industries can be beneficial.”

4. Invest regularly

“One of the best strategies for reaching financial goals is to commit to regular monthly investing,” says Greenhalgh. “The discipline of regular saving combined with the right investment strategy can achieve the goal faster than simply relying on an initial lump sum invested.”

“By investing regularly whether the market is rising or falling, benefits can be derived from ‘dollar cost averaging’,” he says. “This means that when the market dips, you continue to buy at cheaper prices with the intention of benefiting from the gains when the market turns.”

This strategy also means having to worry less about “guessing” when is the right time to invest.

One of the best strategies is to commit to regular monthly investing.

5. Tap into experts as needed

Not everyone has the time or experience to do their own investing. Instead of going it completely alone, Greenhalgh recommends considering tapping into the expertise of a professional investment manager. “They can manage the share market portfolio, monitoring and rebalancing the portfolio over time,” he says.

Greenhalgh acknowledges that, “Everyone’s situation is different. You’ll need to consider your own needs and objectives including your risk profile before deciding where and how to invest.” Share market investing could be one element of reaching a goal for a home deposit.

Kathleen Aoki is a business professional and freelance writer with over 10 years' experience in the IT industry. Writing for industry publications and blogs across Australia, she specialises in banking, finance, real estate, social media, mobile technology and more.

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